Michigan HICA Tax to Be Repealed

SIIA Litigation and Lobbying Efforts Help Secure an Important Win for the Self-Insurance Marketplace

May 30, 2018 - The Self-Insurance Institute of America, Inc. (SIIA) is pleased to report that both chambers of the Michigan Legislature have now passed legislation to repeal the Health Insurance Claims Act (HICA), an uncompetitive assessment on self-insured employers in that state. It is expected that the legislation will be signed into law in the coming weeks.

SIIA has taken a forceful role in the effort to repeal HICA, acting as the lead plaintiff in SIIA v. Snyder which argued for ERISA pre-emption over state efforts to tax self-insured health plans. The court case, filed in 2016, was ultimately denied a Writ of Certiorari by the US Supreme Court after a denial by the 6th Circuit. Employer-sponsored plans are currently paying approximately $315 million annually through the HICA tax.

Senate Bills 992, 993 and 994 would eliminate the HICA tax and replace it with a smaller Insurance Provider Assessment (IPA) tax, while also exempting self-insured health plans for the new, smaller assessment all together.

As background, the HICA was passed in 2011 despite the vigorous opposition of SIIA and a coalition of Michigan business, including the Michigan Manufacturers Association. HICA assesses a one percent tax on all health care claims paid in the State, with revenue earmarked to support Michigan’s Medicaid program. Entirely unique as a state funding mechanism, the HICA tax creates a disincentive to providing health benefits and creates a competitive disadvantage for employers in Michigan. The HICA tax is currently scheduled to sunset on July 1, 2020.

As part of a broad business coalition, SIIA was successful in passing legislation in 2016 to eliminate the HICA and use an alternative revenue stream to replace the Medicaid funding. The legislation passed both chambers with bi-partisan support. However, Governor Snyder ultimately vetoed the bills, citing concerns that the federal government would not approve the plan. This year, the administration is proactively working with legislators, and the governor’s staff has already been working to seek federal approval for federal matching revenue. SIIA understands that staff from the federal Center for Medicare and Medicaid Services (CMS) have given assurances that the IPA will qualify for Medicaid matching funding.

Upon approval by CMS, the Michigan legislation would establish a new provider tax on Medicaid HMOs and health insurance issuers in fully-insured commercial markets The HICA tax would be repealed as soon as CMS grants the waiver, or on October 1, 2018, whichever is later. It is important to note that self-insured groups are exempt for the IPA tax. An analysis of the three bills is available here.

Please watch for additional reporting on this developing story. Should you have any questions in the meantime, contact Adam Brackemyre at abrackemyre@siia.org.